More about Fundamental Market Pressure (FMP)

Okay, I agree, a picture is worth a lot of words. A friend of mine called me up and complained about the article on FMP. He just wasn’t able to visualize what I was talking about. After reading the article again, I agree. It is not easy to visualize. Probably because FMP is a force that applies itself over a great length of time – often years at a time..

So I came up with the following chart to try to give you a better idea of FMP. Figure 1 shows a multi-year chart of USDJPY – from 2008 through the current date. The bars are configured as weekly data – primarily to make the chart easier to read.

Figure 1: USDJPY – Weekly Data – 2008 thru 2016

Starting even earlier that 2008, the FMP was pressing the pair price down – which means the yen was getting stronger against the dollar. The value of the yen peaked (at the bottom of the chart) at about 75 to the dollar.

Then for a couple of years FMP was about neutral.

That was followed by almost a year of pressure on the pair to rise in price.

Then another two years of basically neutral FMP.

That was follow by about a year of upward pressure again that saw the yen above 120 to the dollar.

2016 has been mostly negative pressure for the USDJYP pair, with prices falling to below 100 yen to the dollar briefly.

I found it interesting that the slope of the trend lines as drawn on the chart seem to coincide with the comparable trend directions on the chart – ups and downs have comparable slopes and of course the neutrals are about flat.

That is one of the reasons that we have come to the conclusion that things are about to change.

The fundamentals in Japan are about as bad as they can get. Looking down the road the yen has a rough row to hoe. Japan is up to its eyeballs in debt and the central bank has indicated that it is doubling down on the purchase of securities (and printing more currency to pay for them). Combined with demographics that work against balancing the budget at any time in the future, the outlook down the road for the yen is about as bleak as any major currency in my recollection – perhaps ever!

So, why the recent surge in the value of the yen versus the dollar? Market sentiment (which is much shorter in duratin than FMP) seems to view the yen as a safe haven currenty.

Well, in our humble opinion it is NOT the superiority of the dollar, but more of an ugly sister evaluation – as bad as the dollar may look, the yen is even worse.

So we believe the FMP is turning again and will push the yen value lower versus the dollar. This positive FMP will take the USDJPY pair to above 120 in the relatively near future and probably double that in that foreseeable future. Market sentiment cannot overcome FMP over the long haul.

The current traders who are buying into the yen are basing their decision on the historical perception that the yen is a safe haven currency. That, to me, is a bit like driving down the road looking into the rear view mirror. That’s a bit daring for my taste.

And finally, our short term indicators, when applied to daily and weekly charts, indicate that a change in direction for USDJPY is at hand.